The banking industry’s string of six consecutive quarters of record earnings ended in 1998:IIIQ as earnings dropped to $15.0 billion. Industry profits were $1.1 billion less than in 1998:IIQ. Despite this setback, return on equity remained above 14% and equity capital increased $11.4 billion to $457.4 billion (8.68% of industry assets), its highest percentage since 1941. In addition, the industry’s “coverage ratio” rose to a record $1.94 in reserves for every $1.00 of noncurrent loans. Consequently, banks appear well positioned to weather any potential reversal of fortune. One cloud in this otherwise bright sky is that the net charge-off rate on all commercial bank loans rose to 0.73% in 1998:IIIQ, the highest rate reported by the industry since 1993:IVQ.
Suggested citation: "Banking Conditions," Federal Reserve Bank of Cleveland, Economic Trends, no. 99-01, pp. 15-16, 01.01.1999.